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Article 21 December 2023

Legal Challenges in the Bancor Protocol Case: Rights of liquidity providers and Impermanent Loss Protection

The team of White Paper Law (WPL) is currently assisting and advising a number of clients who have staked tokens as liquidity providers to Bancor Protocol v2 or v3 and suffered losses, including losses caused by the withdrawal of Bancor’s so-called ‘Impermanent Loss Protection’ (ILP) mechanism.

The Bancor Protocol (Protocol) was purportedly a decentralised crypto trading and liquidity protocol, developed by the Bprotocol Foundation. Established in 2017 and based in Switzerland, the Protocol purported to be designed to facilitate token swaps and staking. 

The Protocol v3, in particular, was globally marketed and promoted, offering a promise of 100% impermanent loss protection instantly upon staking tokens. This contrasted with the Bancor v2, which offered the same level of protection but only after 100 days of providing liquidity.

On June 19, 2022, Bancor suspended its ILP promise citing ‘hostile market conditions’. This suspension led to substantial losses for liquidity providers, with claims potentially amounting to hundreds of millions of US dollars. Despite assurances of compensation for these losses through protocol fees or BNT tokens, the value of these tokens fell in 2022, there therefore being no compensation for investors and their situation in fact being exacerbated.

Evidence accumulated during early-stage legal work will potentially lead to the initiation of a lawsuit to recover these losses. The initial response from the Bancor entities has been to seek to shift responsibility, suggesting that liquidity providers themselves were responsible and in control of the protocol.

Our team has experience in fraud and asset tracing, shareholder fund disputes, and regulatory investigations.

If you staked tokens as a liquidity provider to Bancor Protocol v2 or v3 and suffered a loss, you can join the action by completing the contact form via the dedicated website: